99 Cent Only Business Strategy v. The Competition

David Gold, founder and CEO says the 99 Cent strategy is “to create the shortest path possible between the customer and the sale” (Rae-Dupree, 2004). This is important in deep discount retail in order to purchase close-out and other special-situation merchandise at prices substantially below wholesale that sell at prices significantly below regular retail (Symplicity, 2005).
     
Over the past two years, the company has suffered a $17.00/share loss on its stock (from $30 to $13.00) mainly due to declining operating margins (Domash, 2004) caused by over-optimism in the Texas market. Competitors were more deeply entrenched than their research had shown, and reduced earnings forecasts combined with declining operating margins were the sell signal for many investors in the company. Also, the need to upgrade their IT infrastructure to support expansion in its California base market was the second company downfall. The following is a summary of the company strategy:

1.     Focus on brand name consumables.
2.     Broad selection of regularly available merchandise.
3.     Attractive and well-maintained stores.
4.     Strong supplier relationships.
5.     Focus on larger stores and wider demographic of value-conscious customers.
6.     Welcoming and Flexible Store Hours and Policies

The Role of IT Infrastructure in Operations and Business Strategy

CEO DISCONNECT WITH TECHNOLOGY

     99 Cents Only strategy is supported by various technologies that must always fall into line with David Gold’s theorem that the company will not spend money on technology to gather information it will not utilize (Symplicity, 2005). Gold’s comments that he does not even have a computer in his office seems to make him technologically reluctant. The psychology of the CEO is certain to permeate the thinking of those under his leadership. His attitude may have contributed to the company’s policy of writing its own software and its reticence to upgrade technology sooner. The operations failure in the California distribution center and the bad entry into the Texas market were both likely the end result of the CEO’s influence on corporate thinking about the role of technology in operations and profitability.


CIO ANGST

Robert Adams, in charge of the company’s IT articulates their company philosophy on IT when he says, “If the ROI is obvious, the implementation is straightforward, and it gets the product to the customer faster of better (Rae-Dupree, 2004).” In Adams, you here the owner’s “shortest path to the customer and sale” outlook being spin doctored into corporate political correctness. In an interview with CIO Insight Magazine (Rae-Dupree, 2004), Adams says that he has no budget for IT and manages within “a streamlined approach” to technology and operations within a “family owned business.” This likely means that IT projects begin and end within the Gold family’s outlook on technology—period.

It appears that taking a more manual and “homegrown” approach to technology actually lengthened the path between customer and sale that CEO Gold is so very concerned about. When designing a new warehousing operation for its new distribution center in Texas, Adams’ IT genius shines through in shortening the “golden” path. Employing Supply Chain Advantage warehousing software with text-to-speech and radio frequency hand-held device technology to increase, speed, efficiency, safety, and loss prevention in inventory management is the capability of Adams at its best.

Adams also knew that his homegrown technology in its City of Commerce distribution center was not adequate. The resulting empty store shelves crisis in mid-2004 was in part a technology-based snafu and partly a leadership gaffe by the Gold family. Better technology implemented sooner could have staved off this second failure that ultimately sent its company value into a nosedive.

Lastly, Adams’ “low hanging fruit” method of giving highest priority to tech projects promising the best ROI is sound. This is an aggressive and progressive management theory that is built on being able to “turn on a dime” and not allowing the company to become a huge corporate ship that cannot easily adapt to ever-changing market conditions and challenges.





References

Coffey, B. (2002, September 30). Every Penny Counts. Forbes. Retrieved June 11, 2005, from Forbes Magazine Web site: http://www.forbes.com/forbes/2002/0930/400068_print.html
Domash, H. (2004, September 19). Two Easily Detected Red Flags. Winning Investing. Retrieved June 11, 2005, from Winning Investing Web site: http://www.winninginvesting.com/two_easy_red_flags.htm
Rae-Dupree, J. (2004, January 1). Case Study: 99 Cents Only Stores' Efficient IT Infrastructure. Ziff Davis CIO Insight. Retrieved June 11, 2005, from Ziff Davis CIO Insight Web site: http://www.cioinsight.com/article2/0,1397,1456000,00.asp
Symplicity. (2002). 99 Cents Only Store. In Employer Profiles (10864). Arlington, VA. Retrieved June 11, 2005, from Symplicity Web site: http://guide.symplicity.com/snapshots/10864